Was Kass Wrong? 7 VIX Correlated Stocks To Prepare For A Market Crash

Back in August Doug Kass of Seabreeze Partners called attention to a nerve-wracking chart that suggested a market crash was upon us. It compares the Standard & Poor’s 500 ( SPX) index with the VIX index, which shows a striking parallel to low VIX and an imminently steep decline in the markets.

The VIX indexes the volatility of all of the stocks in the S&P 500. That means if the S&P 500 is highly volatile, the VIX index climbs. VIX values above 30 typically reflect great volatility, while values below 20 reflect calmer markets. In August, the VIX was at a multiyear low of 13.45. Six months later, not much has changed. Kass had said we could expect a heavy drop-off any day, does his theory still hold?

Consider these charts, an updated version of the ones Kass showed in August. Again, note that when the VIX has hit lows, it was almost always followed by a dropoff in the S&P 500. Today, the S&P is hitting a multi-year highs, while the VIX is at a multi-year low. It looks ominious. 

 

Screen shot 2013-02-08 at 3.28.20 PM

Business Section: Investing Ideas

If you believe in this chart’s uncanny predictive abilities, you’re probably wondering what you can do to protect your portfolio.

With this in mind we ran a screen to see which stocks perform well in times of high volatility, with a high positive correlation to the VIX index. That means if the S&P 500 is highly volatile, the VIX index climbs, and these correlated stocks tend to climb with it.

Put another way, this chart suggests the VIX is about to change from a very low value to a higher one. The stocks below tend to rise (increase in share value) along with the VIX value.

We took only the names with correlations of 0.55 and higher and short covering in the past month – a signal that short sellers expect share price to increase.

 

1. Allot Communications Ltd. (ALLT): Engages in developing, selling, and marketing Internet protocol service optimization solutions in Europe, the Middle East, Africa, the Americas, Asia, and Oceania. Market cap at $444.51M, most recent closing price at $14.04.  Shares shorted have decreased from 1.13M to 482.17K over the last month, a decrease which represents about 2.29% of the company's float of 28.23M shares. Days to cover ratio at 0.58 days. Correlation with the VIX index at 0.695 over the last 60 days. 

2. American Greetings Corp. (AM): Engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide. Market cap at $508.45M, most recent closing price at $16.07.  Shares shorted have decreased from 12.36M to 12.07M over the last month, a decrease which represents about 1.04% of the company's float of 27.82M shares. Days to cover ratio at 38.31 days. Correlation with the VIX index at 0.564 over the last 60 days. 

3. magicJack VocalTec Ltd. (CALL): Market cap at $249.05M, most recent closing price at $13.06.  Shares shorted have decreased from 5.27M to 5.10M over the last month, a decrease which represents about 1.91% of the company's float of 8.91M shares. Days to cover ratio at 11.93 days. Correlation with the VIX index at 0.643 over the last 60 days. 

4. Comstock Resources Inc. (CRK): Engages in the acquisition, development, production, and exploration of oil and natural gas properties in the United States. Market cap at $685.32M, most recent closing price at $14.23.  Shares shorted have decreased from 10.36M to 8.26M over the last month, a decrease which represents about 4.69% of the company's float of 44.82M shares. Days to cover ratio at 7.67 days. Correlation with the VIX index at 0.562 over the last 60 days. 

5. Mellanox Technologies, Ltd. (MLNX): Engages in the design, development, marketing, and sale of interconnect products primarily in North America, Israel, Europe, and Asia. Market cap at $2.31B, most recent closing price at $54.48.  Shares shorted have decreased from 7.29M to 6.76M over the last month, a decrease which represents about 1.45% of the company's float of 36.51M shares. Days to cover ratio at 4.49 days. Correlation with the VIX index at 0.565 over the last 60 days. 

6. Skullcandy, Inc. (SKUL): Develops and distributes headphones and other audio accessories to retailers in the United States and to distributors in various countries worldwide. Market cap at $182.04M, most recent closing price at $6.61.  Shares shorted have decreased from 6.02M to 5.72M over the last month, a decrease which represents about 1.92% of the company's float of 15.66M shares. Days to cover ratio at 8.73 days. Correlation with the VIX index at 0.638 over the last 60 days. 

7. EXCO Resources Inc. (XCO): Engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays. Market cap at $1.41B, most recent closing price at $6.52.  Shares shorted have decreased from 19.66M to 17.66M over the last month, a decrease which represents about 1.51% of the company's float of 132.70M shares. Days to cover ratio at 5.91 days. Correlation with the VIX index at 0.565 over the last 60 days. 

List compiled by Kapitall's Rebecca Lipman. VIX data sourced from Yahoo! Finance, all other data sourced from Finviz.

 

 

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